Accounting Principles I – Online
Chapters 3 & 4 – Exam – Part II
PART A (24 Points)
In the journal for McGill Company provided below, record the appropriate adjusting entries as of December 31. Please note that McGill Company has not prepared any adjusting entries for the current year prior to December 31.
a. The Store Supplies account showed a beginning balance of $700 and purchases of $500. Unused store supplies at the end of the year were counted and totaled $300.
b. On December 1, the company paid three months rent in advance, debiting Prepaid Rent for $1,800.
c. Equipment purchased January 1of the current year for $26,000 was estimated to have a useful life of 5 years with $1,000 salvage value.
d. Wages are paid each Friday for a 5-day week. The salary is set at a fixed rate of $800 per day, and the accounting period ended on Wednesday.
e. On November 1, the company accepted a $10,000, 12%, 9-monthNote Receivable. An adjusting entry should be made to accrue the interest on this note.
f. The balance in Unearned Commissions Revenue at December 31, is $1,400. This represents a customer deposit for which one-half has been earned as of December 31.
McGILL COMPANY GENERAL JOURNAL
PART B (30 Points)
Below is an Adjusted Trial Balance for Green Company for the year ended December 31. In the space provided on the next two pages:
a. Record the appropriate closing entries. (Third line explanations are not necessary.)
b. Prepare a Post-Closing Trial Balance.
|Adjusted Trial Balance|
|December 31, 20xx|
|Accumulated Depreciation, Office Equipment||$ 4,000|
|C.R. Green, Capital||8,000|
|C.R. Green, Drawing||1,200|
|TOTALS||$ 20,000||$ 20,000|
GREEN COMPANY GENERAL JOURNAL
|Post-Closing Trial Balance|
|December 31, 20xx|
PART C (16 Points)
Required: For EACH of the two questions below, write at least one full paragraph in response to the question asked
1. Explain why adjusting entries should be made at the end of an accounting period. There are two categories of adjusting entries, Accrual Adjustments and Deferral Adjustments. Explain each category fully and give at least one example of each.
2. The long-term liability section of Beta Company's Balance Sheet includes the following accounts:
|Notes Payable (due in 5 years)||$100,000|
|Total long-term liabilities||$550,000|
Beta Company is an established company and does not experience any financial difficulties or have any cash flow problems. Identify at least two items in the long-term liability section that are questionable and explain where the placement on the balance sheet would be more appropriate and why.
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